Fibonacci Extension

Fibonacci Extension is a technical analysis tool used to identify potential price targets beyond the standard retracement levels. This tool is particularly useful for traders looking to set profit targets after a price retracement has occurred, as it helps determine where price might extend following a significant move.

Overview of Fibonacci Extension

The Fibonacci Extension tool utilizes the Fibonacci sequence to project potential future price levels based on previous price movements. Unlike Fibonacci retracements, which identify levels within a trend, extensions help traders forecast where the price may go after a pullback or correction.

Key Components of Fibonacci Extension

1. Fibonacci Ratios: The primary Fibonacci ratios used in extensions include:

   • 100%: The original price movement.
   • 161.8%: A common target level for potential extension.
   • 261.8%: A significant extension level indicating strong bullish or bearish momentum.
   • 423.6%: A further extension level used in more aggressive trading strategies.

2. Price Levels: The tool generates horizontal lines at each of the Fibonacci extension levels, allowing traders to visualize potential price targets based on historical movements.

Steps to Use Fibonacci Extension

1. Open the Platform:

   • Log in to your account.
   • Load the chart for the asset you want to analyze by entering the ticker symbol.

2. Select Chart Type and Timeframe:

   • Ensure your chart is set to Candlestick or another suitable type for clear visualization.
   • Choose an appropriate timeframe (e.g., daily, weekly) that aligns with your trading strategy.

3. Access the Drawing Tools:

   • Click on the Drawing Tools panel in the chart interface.
   • Locate the section that includes Fibonacci tools.

4. Select the Fibonacci Extension Tool:

   • Find the Fibonacci Extension tool within the drawing tools section.
   • Select this tool to begin plotting the extensions on your chart.

5. Drawing Fibonacci Extensions:

   • Click at the starting point of the price movement (the significant low or high).
   • Drag the cursor to the opposite extreme of the price movement (the significant high or low).
   • Then drag the cursor back towards the price point of the original movement to establish the reference for the extension.
   • Release the mouse button to create the Fibonacci Extension lines based on the selected price movement.

6. Customizing Fibonacci Extensions:

   • Use the settings menu to customize the appearance of the extension levels, including colors, line styles, and visibility of specific ratios.
   • Adjust the Fibonacci levels displayed if necessary based on your analysis needs.